- 1. ALL ABOUT SHARES & HOW TO ISSUE AND BUY BACK THEM?by
:DR. T.K. JAIN AFTERSCHO OLcentre for social
entrepreneurshipsivakamu veterinary hospital road bikaner 334001
rajasthan, india FOR PGPSE PARTICIPANTSmobile : 91+9414430763
2. Sec. 2(46) :Share means share in the capital of a company 3.
Types of shares :Equity preference (preference in dividend, wind up
etc. )sweet equity (for employees)share warrant (right to buy
shares in future) right shares (right of existing shareholders to
buy share)bonus share (freely given to existing shareholders) 4.
Types of capitalAuthorised / nominal/ registered(mentioned in
MOA)issued subscribed called uppaid upreserve 5. Can a company
issue irredeemable preference shares ?Noonly redeemable preference
shares can be issued (sec. 80 of company act) these must be
redeemed in max. 20 years 6. Rules regarding redemption of
preference shares :Redemption only out of profit / fresh issueonly
fully paid shares can be redeemed it must create redemption reserve
fundif premium is paid at redemption, it must be from profit /
security premium account 7. Shares with differential voting rights
.... Here the shareholders get different voting rights / different
dividendarticles must authorise itapproval of shareholders is
necessarymax. 25% of total equity(as per 2000 amendment which
deleted sec. 88, which didnt allow such shares) 8. BUY BACK OF
SHARES1999 amendment brought Sec. 77A,77AA,77B, which allowed buy
back and deleted 77(1), 77(2) which didnt allow buy back 9. WHY BUY
BACK?To increaase EPSwhere there is surplus profitWhen company has
excess funds/ liquidityto defend company from possible takeover
bidsto provide exit route to shareholdersto increase market value
of shares` 10. How to have buy back?Out of free reserves or out of
security premium accountor out of proceeds of fresh equity issues
11. How much can a company buy back?10 % of paid up capital +
reserves = if authorised by AOA + board resolutionby special
resolution : Max. 25% ofpaid up capital + reservesbuy back must be
completed in 12 months all the shares must be fully paid upSEBI
(buy back) regulations 1998 must be followed 12. Rules of buy back
:In 6 months company cant issue bonus / fresh issue / convert
warrants into equity / sweat equityfill up form 4a & 4b must be
filled with ROC ratio of debt equity ratio 2:1read
:www.sebi.gov.in/faq/buybackfaq.htm
www.legalserviceindia.com/articles/shares.htm 13. Penalty50000or 2
years imprisonment for default 14. Prohibition of buy back (sec.
77B)When a company has defaulted in payment of deposits / repayment
of interest / deposit / dividend, it cant buy back its shares when
it has defaulted in submitted annual accounts as per sec. 159, 211,
207 it cant buy back shares 15. Case: SterliteBuy back under sec
77A cannot be overriding to powers of the court under Sec. 100,101,
391 and therefore buy back cant be unilateral.Read
:http://www.financialexpress.com/news/hc-admits-dca-plea-on-sterlite-buyback/50344/
16. SWEAT EQUITY SHARESSEC. 79AAS PER 1999 AMENDMENTshares of
existing class onlyat least 1 year must have passedSpecial
resolutionas per SEBI
guidelineswww.sebi.gov.in/acts/sweatregu2002.html 17. Issues
regarding sweat equityHow to value / price sweat equity shares
?VERMA COMMITTEE
RECOMMENDATIONShttp://www.hinduonnet.com/2002/10/04/stories/2002100403471800.htm
www.financialexpress.com/printer/news/55236/ - Angola 18. ISSUE OF
SHARES AT PREMIUM / DISCOUNTDISCOUNT : MAX. : 10% (MORE BY CLB
PERMISSION)FIRST ISSUE CANT BE ON DISCOUNTPREMIUM IS TRANSFERRED TO
SECURITY PREMIUM A/C AND CANT BE TREATED AS PROFIT 19. HOW TO USE
SHARE PREMIUM AS PER 78(2) :FOR BUY BACK OF SHARES FOR ISSUE OF
BONUS SHARES WRITING OFF PRELIMINARY EXP / COMMISSION / DISCOUNTFOR
PREMIUM ONREDEMPTION OF SHARES 20. BONUS ISSUESIt is for FULLY PAID
UP shares http://dpe.nic.in/newgl/glch0312.htm authorised by AOA
sanctioned by ordinary resolutionout of free reserves (not from
revaluation of fixed assets) . 21. Share allotmentAllotment must be
unconditional within reasonable timesec : 73(1A),69,72,73 and 70
must be followed issue of prospectus, minimum subscription, min.
Application money etc. Must be followedapply to stock exchanges and
take permission otherwise allotment will be void (if Stock exchange
refuse, apply to SAT) . 22. How to transfer share in private
company ?Generally answer is No private company doesnt allow share
transfer(i) Transferor should give a notice in writing for his
intention to transfer his share to the company. (ii) The company in
turn should notify to other members as regards the availability of
shares and the price at which such share would be available to
them. (iii) Such price is generally determined by the directors or
the auditors of the company.(iv) The company should also intimate
to the members, the time limit within which they should communicate
their option to purchase shares on transfer. 23. Minimum
subscription90% - in 120 days from prospectusotherwise return in
130 daysothersie interest 6%as per SEBI guidelines, these rates
have changed so read latest SEBI
guidlineswww.sebi.gov.in/commreport/rep245.htmlwww.sebi.gov.in/acts/ipguidelines.pdf
24. CallsMake a call- at least 5% on application, (minimum
25%)board resolution must be passed14 day notice for callsinterval
of 1 month between two callssec. 92 : advance call may be taken up
25. ForfeitureAt least 14 day noticeAOA must authoriseBoard
resolution is necessarya person is responsible for unpaid money
even after forfeiture of his shares 26. Underwriting commission2.5%
on debentures5% on sharesmust be mentioned in prospectusagreement
with underwriter must be submitted to ROC 27. Sebi
guidelineshttp://www.sebi.gov.in/SectIndex.jsp?sub_sec_id=4 28.
What is minimum subscriptionIt must be mentioned in prospectus as
per SEBI guidelines : 90% is minimum subscription 29. Issue
normsIssue norms must be given in prospectus. Issue must be made in
30 days of public issue closure(otherwise penal interest
@15%)refund orders (if any must be despatched in 78 days).Allotment
must be made by board of directors / proper authority 30. Transfer
of sharesNow it is through Demat (NSDL or CDSL) so it is a request
to these Demat companies to transfer the shares , but earlier you
had to sign a transfer deed sec 108, to 111A gave details of
transfer of shares- which was applicable in the case of physical
shares. 31. NominationEvery shareholder can nominate a person as
per sec. 109A. Thus if a person dies, his nominee will get the
shares. Nominee can be minor also. 32. Difference between transfer
& transmission ?Transfer is a voluntary act, you intentionally
transfer your shares but transmission takes place by law suppose X
dies, his shares transmitted to his nominee. Cases when tranmission
takes place : 1. death 2. insovency 3. lunancy 4. any other
situation prescribed by law 33. Transfer deed(physical shares)When
you want to transfer shares, get a transfer deed, get it endorsed
by registrar of companies and then it should be signed by both
tranferor and transferee. It must contain particulars of shares,
address of transferee. Then it should be lodged to company, which
will enter name of transferee in register of shareholders. If the
company wants to refuse transfer it has to inform in 2 months with
reasons (like signature mismatch etc.) 34. GOLDEN RULEKindersely :
in Brunswick etc. v/s Muggeridge (1860) :the person issueing
prospectus must give every informationstricktly and scrupulously
and must not omit any material information 35. Important
rulesExperts opinion only after obtaining written consent by
expertsDirector names only after obtaining written consent by
director to become the director the experts mentioned must not be
connected to formation of the company(indemnify if there is false
information) 36. When can registrar refuse to register a
prospectusIt is not dated it is not signed it is not accompanied
with documents it is not as per company law & SEBI guidelines
37. STATEMENT IN LIEU OF PROSPECTUS1. when a private company
becomes a public company(within 30 days)2. when public company is
not issueing shares to public, they have to issue this.3. when a
public company doesnt allot shares to publicit must have contents
similar to prospectus, penalty if untrue statement : 10000
http://www.vakilno1.com/bareacts/companiesact/s44.htm 38. BE A
PROMOTOR A Promotor is a person who sets up a company.As a
promotor, you have to think about the idea and convert this idea
into a company. As a promotor, you have to set up initial contracts
so that company becomes operational. 39. Steps ...... Prepare
Memorandum of association (as per format) in at least 3 copes
Prepare Articles of association (as per format) in at least 3 copes
(or apply Table A of schedule I)Prepare agreements with directors
Submit declaration to Registrar of company that all formalities
have been fulfilled (by company secretary)prepare prospectusgo
ahead for raising money for your dream ideas 40. LEGAL FORMSForm
NO. 1 : declaration of all the formalities of company(to be filed
with registrar of comapnies ). for other forms and their structure,
click on the following link :
http://www.mca.gov.in/MCA21/dca/downloadeforms/Download_eForm_choose.html
http://www.vakilno1.com/froms_html/co_form.htm 41. THANKS.... GIVE
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